Tesla strongly objected to a ruling that invalidated the most generous pay package in history, promising to challenge the decision on behalf of CEO Elon Musk. This case could have significant implications for the corporate world.
Delaware chancery court judge Kathaleen McCormick ruled on Monday that defendants, including Musk, his colleagues, and the company itself, had failed to inform Tesla owners that the CEO had the authority to determine his own compensation terms.
The final decision nullifies the previous 2018 shareholder approval, which granted Musk options to acquire 304 million shares of the company at a 93% discount to the current market price.
Tesla announced its intention to appeal the ruling to the Delaware Supreme Court, arguing that the judgment hindered Musk from receiving his rightful compensation.
Moreover, McCormick was accused of unfairly depriving shareholders of awarding the package to Musk in the first place.
Based on Monday’s closing price of $357.09 per share, the package is valued at a net $101 billion after factoring in the necessary cash to exercise the options.
“A Delaware judge has overturned the decision of the majority of Tesla shareholders who twice voted to pay Elon Musk what he deserves,” the company commented on Monday. “The court’s ruling is incorrect, and we intend to appeal.”
Challenges in Compensation
Musk’s exceptional net worth, exceeding $335 billion, complicates the development of a new pay arrangement.
The original 2018 agreement required Tesla to expense $2.3 billion, a substantial sum for most CEOs but comparatively insignificant for Musk today.
Judge McCormick criticized Tesla’s board, including chair Robyn Denholm, for not acting independently in 2018.
Denholm, who has sold over $75 million in Tesla shares this year, stated that her role at Tesla brought about “life-changing wealth.”
Impact in Silicon Valley
The ruling has sparked discussions about Delaware’s status as the leading state for corporate incorporation.
Critics, such as venture capitalist Bill Gurley, caution that the ruling could prompt companies to move to states like Nevada, regarded as more business-friendly.
Gurley referred to the Musk package as “one of the most shareholder-aligned incentive agreements ever” and argued that Tesla’s remarkable growth since 2018 demonstrates that it was not excessive.
“This is a victimless crime, and this is what makes Delaware look like a kangaroo court,” he added.
Future Steps for Tesla
Tesla’s appeal to the Delaware Supreme Court faces considerable challenges. Judge McCormick dismissed the June ratification vote as insufficient to remedy prior fiduciary breaches.
Some analysts suggest that the case could escalate to the U.S. Supreme Court, where a conservative majority might be more sympathetic to Tesla’s arguments.
Tesla’s stock concluded Monday at $357.09, with Musk’s disputed options still hanging in the balance.
